My Portfolio

Buffett and Budweiser

April 22, 2005


Last month, I bought Anheuser-Busch (NYSE: BUD) in my retirement account. My primary reason for buying was that BUD traded at the low end of its historical valuation for a fine company that has consistently increased its sales, earnings and dividends. Yesterday, the stock popped 7% on the company’s terse announcement that Warren Buffet has bought a significant stake in the company.

While, it doesn’t hurt to have the world’s greatest investor in your corner, BUD faces significant short-term challenges: volume growth is anaemic, the company issued a recent profit warning, it is facing competition from a reinvigorated SAB-Miller and consumer preferences for other alcoholic drinks. In its favour, the company is a mighty marketing and profit machine and will be a significant player in the fragmented global beer industry. A-B is a growing presence in China that could drive its long-term growth.

Long-term investors will be pleased with A-B’s prospects, while Wall Street’s focus on the company’s short-term performance will likely depress the stock. Just a day after the Buffett announcement, two brokerages have downgraded the stock, citing near-term challenges.

My Dumbest Investment

April 21, 2005


My dumbest investment turns out to be not so much what I bought, but what I didn’t sell. Just out of university, I joined a start-up tech company in the go-go days of the late nineties. It was a good time to be an engineer. Companies held BBQs to hire software developers and gave away PT-Cruisers just for applying for a job. Employers gave out stock options and bonuses like drunken sailors just to keep people from leaving. On-site massages were a common employee perk.

A high-flying, NASDAQ-listed, high-octane tech outfit bought out the start-up company I was working with. The value of my vested stock options was an incredible 70% of my net worth. In hindsight, I should have sold all my options as soon as I was eligible to sell. I didn’t know a thing about how the stock market worked then (my wife says I still don’t!) and was dreaming about the millions my options were going to be worth in the future.

I did think about selling but I was worried about the wrong things. I was worried about the taxes I would be on hook for and worried about how much of an idiot I would be if I sell and the stock rockets from there.

You can easily guess how this story ends. A year or so later, my employer severely disappointed Wall Street expectations and the stock tanked spectacularly. A few months and a lot of internal turmoil later, my employer was acquired by a much bigger fish. The new company restructured operations by laying-off a significant chunk of the workforce, including yours truly.

Now, a couple of years later, I am (hopefully) much wiser for the experience. I consider my experience a very expensive education:

  • Never tie-up any more of your financial future with that of your employer than necessary
  • Never have too much riding on one stock
  • Consider buying and selling a stock strictly on its merits, not tax issues

Buying AIG

April 15, 2005


I am buying scandal-tainted AIG for my retirement account. The breadth of accounting irregularities at AIG has been widely reported. The Dow component stock has fallen from a high of $72 (reached after the resolution of a previous set of problems) to around $52. AIG has also delayed filing its 2004 annual report pending a review of its accounting practises. It is possible that the accounting review being conducted by the company could unearth more problems.

However, I think that investors have overreacted to the problems facing AIG. The new management appears to be cooperating fully with the authorities. More importantly, AIG has promised to improve transparency and corporate governance. I’m betting that once the dust settles investors would see AIG’s strengths: its strong financial position, significant global presence especially in China and Japan and impressive earnings growth. At $52, the stock is trading at less than 10 times its estimated 2005 earnings of $5.25. In the short-term, the stock does have a lot of headline risk associated with it.

ValueLine’s free stock report on AIG can be found here.